“Austerian” Economics: Does the Vienna School Favor Fiscal Deficit Reduction Even in a Subpar Economy?

Does the economic analysis associated with the modern Austrian school favor a policy of restraining the government’s fiscal deficit even in a subpar economy, as suggested by those who (pejoratively) label such a policy “austerian”? Because resources are not superabundant even in a subpar economy, the answer is yes, unless (implausibly) the return on the last (lowest-payoff) dollar of government expenditure exceeds the return on private investment.

Presidential address delivered at the Society for the Development of Austrian Economics meetings on November 24, 2013.